So, I was going over my personal financial statements today. I make it a habit to do this at the beginning of every month, and being that it is the beginning of the year, I also like to spend some time looking at how we did over the past year with our finances. I really had a good laugh when I took a look at how my 401k performed this past year (although I should be crying).
At first glance, I thought I had done pretty good because my account balance is actually up from where it stood at the beginning of the year. However, after looking a little closer, the reason my balance is up is because of the loan payments (I quit contributing 3 years ago) I made to the account. If you take out my loan payments, I had a net loss of $429.53 for the year. Really, a loss?!?!?
So I decided to look into things a little further. With my 401k I’ve taken a simplistic approach and I simply invest in the S&P500 because most funds don’t beat the S&P on a yearly basis and it really simplifies everything. So, if you look at the S&P 500, we started the year at 1271.89 and it closed the year at 1257.60 for a loss of 1.1%. So, it makes sense that I lost money.
But I didn’t stop there…I decided to look at my 5 year performance. To my dismay the loss has been even bigger over the last 5 years – the S&P500 is down 11.3% since January 2007.
Okay, so I haven’t made any money over the past 5 years, so I decided to go all the way back to when I first opened my 401k. I’ve been at my job since January of 2000, and I opened my 401k in April of 2000. To my dismay, the S&P500 is down over 16% since April of 2000. This represents an annual loss of approximately 1.3% every single year I’ve been investing in the S&P 500. At this rate I’m doomed to be greeting shoppers at Wal-Mart.
Honestly, this simple exercise of looking over my 401k performance over the last year has confirmed to me why Kelly and I have quit investing in the stock market and we’re putting all of our money into real estate.
Now, let’s compare this putrid performance in the stock market with just one of our property investments – 630 Lydia in Pontiac, MI.
We purchased this property in August of 2010 for $17,500 (yes that figure is right). When we purchased, we took out a loan of $12,000 on the property, so our actual investment in the property was $5500. So let’s take a look at how we did with this property – here are the actual numbers from this past year:
Rental Income – $11,815.92
Property Expenses – $6,890.68
Mortgage – $1,320.00
Cash Flow $3,605.24
So we made $3,605.24 on this one property last year making a 65% return on our $5,500 investment – a tad better than what I got out of my 401k. Perhaps I might be able to skip the Wal-Mart gig after all.
Honestly, I’ve been thinking about cashing in my 401k for a while now and putting the funds into real estate. Even with the penalties and taxes I would have to pay to cash it in, I’m confident I will be much farther ahead buying a few more rental properties. After looking at the performance over the past year, I’ve decided it’s time. The 401k is going to get cashed in and we’re going to be purchasing some more property.